India Needs Massive Investment in Physical Infrastructure to Catch China Growth
This is the second in a series of posts dedicated to the BRIC countries. While the late John Hughes would have appreciated the titular tribute to his Breakfast Club classic, the series is meant to stimulate a robust discussion among those interested in the subject.
For the uninitiated, BRIC is an acronym coined by Goldman Sachs to refer to the red-hot economies of Brazil, Russia, India and China. According to the investment group’s projections, the BRIC countries could become among the four most dominant economies by the year 2050.
Part I of this series centered on Brazil with the post Hey Brazil–Take Your Time With Those BITs, I Can Get Them Somewhere Else! Let’s pick things up with India.
Of all the emerging markets, India is the one for international business interests to watch. As the U.S., Europe and Japan struggle to recover from the worst recession in 60 years, India’s stock market index has soared over the last 12 months and its economy may grow 8.2 percent in the year starting April 1, the fastest in two years according to India’s finance ministry.
The video below does a great job of capturing India’s ebullient optimism in its race to become the emerging market leader:
At what may come as a surprise to some, India’s economy looks to be rebounding from the downturn in better condition than China’s. India doesn’t appear to be facing the same degree of potential dangers and downside risks as China, which means policymakers in New Delhi might have a much easier task in maintaining the economy’s momentum than their Chinese counterparts.
According to Nouriel Roubini, the economist who predicated the financial crisis,
“China might be facing a greater challenge in maintaining its double-digit growth rate than India is facing in achieving a double-digit growth.”
Roubini added that he favors the “more balanced economy of India” over China.
What India needs most, Roubini cautioned is “physical capital in the form of infrastructure that can be provided by both by public and private investments or private-public partnerships.”
I agree with Roubini’s assessment concerning India’s urgent and primary need for investment in physical infrastructure. On my visit to India recently, I was stunned at the level of underdevelopment of the country’s ports and interior roadways compared to the economic centers of China.
Unless massive investments are made in these areas, India’s competitiveness among emerging markets will be sure to suffer.
If, however, India manages to make the proper investments and stay the course, it will give its BRIC brethren lots to worry about–just take a look at the graph below:
India’s upward trajectory is hard to ignore. If you’re interested in learning more about investing in or doing business in India, be sure to visit the Embassy of India Washington D.C. website. There you’ll find a host of resources to set you on the right path. Of course, you can contact me directly and I’d be delighted to point you in the right direction.
What do you think? Is India poised to take the lead among emerging markets?
Trend to Watch: Although not the most likely scenario, it is possible that Indian growth could overtake China’s within the next few years should China slow and India maintain its current pace.
-Santiago